Moody’s view on economy offers respite

OUR SPECIAL CORRESPONDENT

All clear

Mumbai, Sept. 26: Moody’s Investors Services today said it would maintain a stable outlook on India’s Baa3 rating for the medium term.

In a note, the rating agency said the impact of the recent reforms announced by the government on the country’s credit profile was minimal. It added that the steps were either too small to have material sovereign credit benefits or carried implementation risks that could outweigh any positive fallout.

In April, Standard & Poor’s (S&P) had lowered India’s outlook to negative from stable. It had warned that the country could be the first among the Bric nations to have its investment-grade rating cut to a junk or speculative status. Fitch Ratings, too, has a negative outlook on India.

Today’s announcement should come as a relief to the government rattled by S&P’s lowering of India’s growth forecast by one percentage point to 5.5 per cent.

Moody’s said the hike in diesel prices and the proposal to limit the use of subsidised LPG cylinders reflected the government’s effort to lower fiscal deficit, but the steps would only reduce the deficit by around 0.1 per cent of GDP (gross domestic product).

However, the announcement by Moody’s did not have a positive impact on the markets today with the Sensex slipping by a little over 62 points on weak global cues.

While rating agencies are in no mood to draw a hasty conclusion regarding the recent actions undertaken by the Centre, analysts feel they will remove any imminent threat of a rating downgrade.

In a note, Deutsche Bank raised the Sensex target to 20000 for this year from 18000. “The back-to-back announcements on fuel price rationalisation and opening up of FDI in multi-brand retail, aviation, power exchanges and broadcasting services against a backdrop of near unanimous scepticism over the government’s ability to meander through the volatile minefield of coalition politics is a huge signal, symbolic of the government’s commitment to reforms and an endorsement of its recognition of the urgency to put the economy above politics, for now,” it said.